A Chase bank is seen in New York's financial district March 11, 2015.
Photo by Brendan McDermid/Reuters

Mixed results from the latest annual stress test of US banks

The Federal Reserve objects to capital distribution plans proposed by U.S. units of Deutsche Bank and Santander, barring the banks from issuing dividends or stock buybacks until it approves a new plan, the central bank said on Wednesday.

The Fed did not reject capital plans for the remaining 29 banks evaluated in the second part of its annual stress test. Bank of America’s approval is contingent on it submitting a revised capital strategy by the end of September.

Even with the Fed’s requirement that it resubmit its capital plan, BofA was still permitted to launch a $4 billion buyback. The company acknowledged, though, that the Fed could restrict its buybacks and dividends if it does not fix the identified weaknesses. 

Many banks responded to the approval by tweaking their buybacks and dividends:

  • Wells Fargo plans to increase its dividend to 37.5 cents per share in the second quarter of 2015, up from its current rate of 35 cents a share.
  • Citigroup plans to raise its quarterly common stock dividend to 5 cents per share and buy back up to $7.8 billion in common stock starting in the second quarter of 2015.
  • Goldman Sachs expects to increase its quarterly dividend by 5 cents to 65 cents per share.
  • JPMorgan Chase intends to raise its quarterly dividend 4 cents to 44 cents per share and repurchase up to $6.4 billion in common stock starting next month.
  • Morgan Stanley plans to repurchase up to $3.1 billion in common stock starting in the second quarter of 2015 and increase its dividend 5 cents to 15 cents per share.
  • U.S. Bancorp expects to raise its 2015 second-quarter dividend to 25.5 cents per share, up 4.1 percent over its current rate. It has also approved a more than $3 billion buyback beginning next month.
  • American Express plans to increase its quarterly dividend by 12 percent and has authorized a repurchase of up to $6.6 billion in common shares through the second quarter of 2016.
  • BNY Mellon expects to repurchase up to $3.1 billion in common stock.
  • Discover plans to repurchase up to $2.2 billion in common stock during the five quarters ending June 30, 2016. It will also raise its next quarterly dividend to 28 cents per share, up from 24 cents previously.
  • Fifth Third Bancorp said it will raise its common stock dividend to 14 cents in 2016. It will also repurchase up to $765 million in shares.
  • PNC expects to increase its quarterly dividend on common stock by 3 cents to 51 cents per share in the second quarter of 2015.
  • Comerica intends to raise its quarterly dividend 5 percent to 21 cents per share. It plans to buy back $393 million in stock starting in the second quarter of 2015.
  • Capital One plans to buy back more than $3 billion in common stock through the second quarter of 2016 and raise its quarterly dividend to 40 cents per share.
  • SunTrust plans to increase its dividend to 24 cents per share in the second quarter of 2015, up from 20 cents previously. It will repurchase up to $875 million in common stock.
  • State Street intends to increase its dividend to 34 cents per share in the 2015 second quarter, an increase from 30 cents. It also plans to repurchase up to $1.8 billion in common stock.
  • Northern Trust expects to raise its quarterly dividend to 36 cents per share from 33 cents starting in the 2015 second quarter. It can repurchase up to $675 million in common stock starting next month.

In BofA’s case, the central bank identified deficiencies including “weaknesses in certain aspects of Bank of America’s loss and revenue modeling practices and in some aspects of the (bank holding company’s) internal controls.” The bank has until Sept. 30 to resubmit its plan.

Bank of America shares fell in extended trading on Wednesday.

Stress tests, adopted in the wake of the 2008 financial crisis, gauge big banks’ ability to manage risk and plan for a potential economic shock. Wednesday’s announcement follows last week’s assessment that the 31 banks’ capital cushion could withstand a hypothetical crisis.

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Banking Industry, Federal Reserve and The Federal Reserve

Mixed results from the latest annual stress test of US banks